Cisco, a pioneer in internet networking, is laying off over 4,000 employees, following a trend among technology firms, which has contributed to increased profits and stock prices but highlights job insecurity in an industry increasingly adopting artificial intelligence.
The mass layoffs announced on Wednesday, alongside Cisco's latest quarterly results, amount to approximately 5% of its global workforce of 84,900 employees, following Cisco's earlier cut of 5,000 workers in late 2022, before its planned $28 billion acquisition of Splunk anticipated to be completed by April 30. Being renowned for producing much of the internet-connecting technology, Cisco estimates its reorganization to incur an additional cost of $800 million.
READ ALSO: Cisco Seeks to Prioritize High-Growth Areas, Cuts Thousands of Jobs to Rebalance Operations
The double whammy of the two significant layoffs within two years has impacted other major technology firms like Google and Amazon, which have also reduced steadily expanding workforces several times since the end of 2022, where many companies are still implementing reductions despite being profitable.
Anticipated Sluggish Demand Over the Next Three Months
For its fiscal second quarter from October to January, Cisco reported $2.6 billion in earnings, 65 cents per share, marking a 5% decline from the previous year. Revenue for the period also dropped by 6% from the prior year to $12.8 billion.
Cisco anticipates slow demand for its products and software services over the next three to six months. CEO Chuck Robbins mentioned on Wednesday's conference call with analysts that customers exercise "greater caution" due to an uncertain economic outlook.
Series of Layoffs Boosting Companies' Profits and Shares
Cisco's restructuring comes after a series of major layoffs at companies like Microsoft, TikTok, Riot Games, eBay, PayPal, Google, and Alphabet since the start of the year, which, when combined with layoffs from last year, have boosted profits and market values even further.
The Nasdaq composite index, driven by technology, has surged by approximately 50% in a rally that brought it close to its all-time high hit in 2021 when pandemic-related lockdowns increased reliance on online services.
Cisco's stock price has only increased by 6% during the same period, influencing management's decision to make deeper payroll cuts compared to other tech companies. The company's shares dropped nearly 6% in Wednesday's trading after releasing its latest quarterly results and uninspiring forecast, indicating that most modest gains could disappear.
Cisco Embracing AI Adoption
Despite layoffs in the tech industry, the U.S. economy has maintained the unemployment rate at 3.7%, slightly above a fifty-year low, and continues to add jobs steadily.
Cisco plans to concentrate on areas of technology to drive future growth like other companies that are cutting jobs in certain departments while creating opportunities in the emerging artificial intelligence (AI) field, which previously relied on human intelligence.
Experts anticipate further job cuts for individuals whose roles may no longer be needed as AI advances.
Robbins praised Cisco's strong partnership with chipmaker Nvidia, whose leadership in AI has propelled it to become one of the world's most valuable companies in the past year, indicating that Cisco will also be well positioned to benefit from the technology, saying, "We are clear beneficiaries of AI adoption."
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